>SUN TV: Robust ad revenue growth… (ICICI DIRECT)

Sun TV reported its standalone numbers for Q4FY10, which were above our expectations. The company reported a topline of Rs 391.9 crore, recording a growth of 42.0% YoY, against our expectation of Rs 335.4 crore. The company reported its best ever EBITDA margin at 84.4% in
Q4FY10, primarily due to lower employee expenses, which declined by 36.4% YoY. PAT margin for the quarter stood at 42.1% as against 40.5% in Q4FY09. The company also reported its consolidated numbers for FY10. Net sales at Rs 1452.8 crore grew 39.7%. Consolidated PAT stood at Rs 519.9 crore, at 34.9% of revenue.

■ Robust ad revenue growth
Sun TV continues to outpace industry growth rate in advertisement revenue. The company reported a 51.3% YoY growth in advertisement revenue in Q4FY10. This can be attributed to high growth in new channels and better inventory utilisation.

■ Highest ever standalone EBITDA margin
The company reported a standalone EBITDA margin of 84.4% in Q4FY10, primarily due to lower employee expenses (lower remuneration for company’s directors). Also, KAL radio reported an EBITDA of Rs 8.17 crore for FY10.

Valuation
We expect the standalone business to do reasonably well but the radio business would continue to be a drag on the company’s profitability. At the CMP of Rs 406, the stock is trading at 23.3x FY11E consolidated EPS of Rs 17.4 and 20.3x FY12E EPS of Rs 20.0. Given the strong advertisement revenue growth in the regional space, we value the stock at 22x FY12E and arrive at a target price of Rs 441, implying an upside of 8.5% of the CMP. We reiterate our ADD rating on the stock.

To read the full report: SUN TV

>TULIP TELECOM (ICICI DIRECT)

On a consolidated basis, Tulip Telecom reported its Q4FY10 results, which were below our expectations. The topline stood at Rs 530.7 crore against our expectation of Rs 557.4 crore. Revenues grew 13.0% and 5.9% YoY and QoQ, respectively. Revenue growth can be attributed to higher realisation from the optic fibre network. The EBITDA was up 54.1% YoY and 14.4% QoQ to Rs 154.4 crore as compared Rs 135.0 crore in Q4FY10. The EBITDA margin at 29.1% improved 768 bps YoY and 216 bps QoQ. PAT stood at Rs 79.5 crore (I-direct estimate of Rs
69.4 crore). PAT was aided by a change in the depreciation policy.

■ Highlights for the quarter
The company reported its best ever EBITDA margin of 29.1%. It was backed by the decrease in stock in trade by Rs 27.0 crore. The company has revised its depreciation policy considering the
company's changing asset profile (ownership of a vast fibre infrastructure), which has aided the PAT during the quarter. The company won an order worth US$13 million for a three-year
period from a partner in Saudi Arabia in the managed services segment. The revenue from the same has started accruing. The company has also proposed a final dividend, subject to approval of shareholders, of 80%, which is Rs 8 per share. Tulip announced a stock split of equity shares of Rs 10 each to five equity shares of Rs 2 each.

Valuation
At the current market price of Rs 940, the stock is trading at 11.5x FY11E diluted EPS of Rs 81.9 and 8.7x FY12E diluted EPS of Rs 107.7. We have valued the stock at 10x FY12E EPS and arrived at a target price of Rs 1077. Due to the recent run up in the stock, we are downgrading our rating on the stock from STRONG BUY to BUY.

To read the full report: TULIP TELECOM

>Enough Blood in the Streets?

Almost everything on world markets from stock prices, oil, other commodities, non-dollar currencies, then proceeded into a near panic sell-off while the usual safe-haven assets such as the U.S. dollar, Treasury bonds and gold rose. This was not a happy performance for most investors and those, like us who have been relatively positive on risk assets for some time (new readers can check out our views for the past 18 months on our website www.BoeckhInvestmentLetter.com which provides back issues). So let’s back up a bit and see whether our relatively positive view needs to be reconsidered. The first point is that readers of this publication and of our recently released book, “The Great Reflation” will know that we are not exactly oblivious to the deep and scary problems of the financial, economic and political world (discussed below). These continue to call for a clear focus on wealth preservation, a profound understanding of risk and return prospects and some sense of timelines and benchmarks to watch closely. So far, the key benchmarks of stability in U.S. Treasury bonds, the U.S. dollar, U.S. corporate bond spreads and low to zero price inflation are still flashing green. This means that the Federal Reserve can continue to pump liquidity into the banking system and economy.

The overall environment, particularly in North America, should remain positive for risk
assets. We think the recent panic in financial markets has been overdone. Having said that, the
economy and financial systems are fundamentally unsound and confidence is fragile, vulnerable
to periodic shocks, like the recent Greek/euro crises. However, recovery from the near collapse
of 2008-2009 is still underway, driven by improving balance sheets and liquidity, the exact
opposite of conditions in 2007-2008 when the economy and financial systems were unravelling.
Further shocks will no doubt occur and will have a significant impact on markets. The rollercoaster ride is still intact and the great reflation has added some steroids. Eventually, the piper will have to be paid, but we think that this can be put off for a while longer. But this view must be tempered with the notion that anything can go wrong at any time with little or no warning— like the euro crisis of recent weeks. Brittle confidence snaps easily and causes financial bloodshed. We think the recent sell-off qualifies, in good part, for Baron Rothschild’s quip about when to buy. While this is no time for complacency, it is probably not the time to lose your nerve.

The big negatives for financial markets are well documented, as are many of the smaller
ones. Frightening news sells well when people are scared and this obviously creates a feedback
loop. The coverage in the press, investment research and subscription services, blogs and TV
have done an excellent job of thoroughly informing us all as to the world’s problems. (Where
were they in 2006-2007 when the problems were being created?). There is no need to cover the
same ground, so we will instead provide our own take on some of the issues.

To read the full report: ENOUGH BLOOD IN THE STREETS?

>Correction in a Bull market? Or beginning of a Bear market?

“When popular opinion is nearly unanimous, contrary thinking tends to be most profitable. The reason is that once the crowd takes a position, it creates a short-term, self-fulfilling prophecy. But when a change occurs, everyone seems to change his mind at once,” wrote Gustave Le Bon in his book “The Crowd.”

For almost fourteen un-interrupted months, stock markets around the globe were climbing higher, recouping $21-trillion of wealth since hitting bottom in March 2009. The global economy was pulling out of its worst recession since the 1930’s, led by locomotives in China, India, and Brazil. On May 4th, a survey taken by JP-Morgan showed that global manufacturing expanded at its fastest pace in six-years in April, as output and new orders surged to new multi-year highs.

In the United States, factory activity was firing on all cylinders, lifting the Purchasing Manager’s Index (PMI), to a six-year high at 60.4 in April, with employers becoming increasingly confident about hiring. Although manufacturing is not a huge component of the US-economy, the factory industry is still where recessions tend to begin and end. For this reason, the factory PMI is very closely watched, setting the tone for the upcoming month and other key economic indicators.

The US-economy added 570,000-jobs during the first four months of 2010, - a sharp contrast to what occurred a year earlier, when the US-economy was losing more than 700,000-jobs /month
during the depths of the “Great Recession.”

To read the full report: BULL OR BEAR MARKET